Fitch Rates WellPoint's Planned Issuance 'BBB(EXP)'
CHICAGO -- August 7, 2014
Fitch Ratings has assigned a 'BBB(EXP)' rating to WLP's planned issue of
senior notes of various maturities. The ratings are equivalent to Fitch's
ratings on WLP's currently outstanding senior notes.
Fitch anticipates WLP using proceeds from the planned issuance for general
corporate purposes, including pre-funding $500 million of 5.0% senior notes
maturing in December 2014 and redeeming all, or a portion of, $1.1 billion of
5.250% senior notes due January 2016.
On Aug. 5, 2014, Fitch downgraded WLP's long-term ratings, including ratings
on WLP's outstanding senior unsecured notes, one notch to 'BBB' and revised
the Rating Outlook to Stable from Negative. The principal reason for the
downgrades was Fitch's expectation that WLP's financial leverage metrics were
likely to remain elevated relative to Fitch's prior expectations. See Fitch's
Aug. 5, 2014 rating action commentary for more details.
KEY RATING DRIVERS
The 'BBB(EXP)' ratings assigned to WLP's planned issuance reflects
expectations that WLP's financial leverage and capitalization metrics will be
consistent with Fitch's 'BBB' Insurer Financial Strength (IFS) rating category
guidelines and that the company's debt service capabilities will be consistent
with Fitch's 'A' IFS rating category guidelines. The ratings also consider
WLP's market position and size and scale characteristics which Fitch considers
reflective of 'AA' IFS rating category guidelines.
Fitch's expectation is that after the issue and WLP's anticipated actions
regarding the issues' proceeds, that the company's ratios of debt-to-EBITDA
(based on trailing four quarters EBITDA) and debt-to-capital will approximate
3.0X and 40% respectively. Fitch expects the issue and redemptions to have a
modest impact on interest expense and believes the company's operating
EBITDA-based interest coverage ratios will be in a range of 8x-11x.
Due to WLP's elevated financial leverage, Fitch has applied non-standard
notching to increase the number of notches between the company's Issuer
Default Rating (IDR) and ratings on the company's senior unsecured notes.
Fitch would consider applying standard notching, resulting in a one-notch
upgrade to the rating on WLP's senior unsecured notes, if the company's
run-rate debt-to-EBITDA ratio approximated 2.5x.
Rating sensitivities that could lead Fitch to upgrade all ratings are:
--Run-rate debt-to-EBITDA and debt-to-capital ratios approximating 2.2x and
--Maintenance of organization-wide NAIC risk-based capital ratios (on a
company action level basis) above 250%;
--Run-rate EBITDA-based margins approximating 9%.
The following factors could lead to a downgrade of all ratings:
--Run-rate debt-to-EBITDA or debt-to-capital ratios that exceed 3.0x and 40%,
--Organization-wide NAIC risk-based capital ratios (on a company action level
basis) below 225%;
--Run-rate operating EBITDA-based interest coverage less than 6x or
EBITDA-to-revenue ratios less than 6%;
--Acquisitions that Fitch believes carry inordinate integration risks or are
--Material goodwill impairments that cause Fitch to question the value of one
of WLP's acquisitions;
--One or more of its subsidiaries' losing the right to use the Blue Cross or
Blue Shield brands.
The following rating has been assigned:
--Senior unsecured notes rated 'BBB(EXP)'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (Nov. 13, 2013);
--'Health Insurance and Managed Care (U.S.) Sector Credit Factors' (Dec. 18,
Applicable Criteria and Related Research:
Health Insurance and Managed Care (U.S.)
Insurance Rating Methodology
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Mark Rouck, CPA, CFA, +1 312-368-2085
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Bradley S. Ellis, CFA, +1 312-368-2089
Jim Auden CFA, +1 312-368-3146
Brian Bertsch, +1 212-908-0549
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